Crunch time nearing for Healthscope

Healthscope is the country’s second-largest private hospital operator.

The week ending May 18 will prove a critical point in the battle for control over Healthscope, as that is when the interest payment holiday ends for the embattled hospital group on its $1.4bn debt.

Healthscope has more than 20 lenders and, as earlier reported, those with about 70 per cent of what is owing in March agreed to a standstill, allowing the healthcare provider breathing space on its loan repayments, where interest would not be paid out.

In that time, a sale process for Healthscope, the nation’s second-largest private hospital operator, has been launched by its private equity owner, Brookfield.

The understanding is that at least the first phase of the process will wind up that week of the debt deadline, when Brookfield can ­assess what to do next.

DataRoom understands that the relationship between Brookfield and David Di Pilla’s HMC Capital is becoming increasingly acrimonious, and the North American firm is becoming determined not to sell the business to Healthscope’s landlord that refused to cut rents.

HMC Capital is the manager to the HealthCo Health and Wellness REIT, which owns about half Healthscope’s hospitals.

With few other parties emerging as interested Healthscope buyers, other than Mr Di Pilla, Brookfield has limited options.

Bain Capital had been around the hoop, but it’s still unclear if it is seriously interested, while the other option is a company break-up, but there’s unlikely to be parties interested in every hospital in the group in a clean deal.

The next and most obvious option is voluntary administration, given Healthscope is unable to pay debts or rents.

This could give Brookfield the power to withdraw from unprofitable hospitals while still paying rent on those where it wants to stay, leaving Mr Di Pilla in the position of finding new tenants for the vacated facilities.

But DataRoom understands that the existing lenders, which includes the top four banks, are reluctant to call in their loans, because they do not want the reputational damage it would cause, particularly ahead of a federal election.

The lenders’ other option is to also sell their debt at a discount, and that’s what is expected to happen in mid-May.

And the buyer of the loans?

HMC Capital, of course, which means Brookfield may not be able to escape HMC gaining control of the business after all.

But Mr Di Pilla is under intense scrutiny, as he suffers billions of dollars worth of losses off the market value of his listed vehicles while trying to not only buy Healthscope, but raise funds for the Neoen renewable energy business acquisition for about $950m.

It’s creating doubt over whether he can pull off a Healthscope transaction.

The only other option is that Brookfield retains Healthscope and recapitalises the company itself.

Yet Brookfield’s head office is understood to have accepted that the company no longer has any equity in the business, so may be reluctant to do so.

Brookfield paid $4.4bn for Healthscope in 2019 and sold its properties for about $2bn.

Since then, escalating staff costs and limited funding increases from its insurance partners have placed further pressure on the loss-making business in the wake of the pandemic from 2020.